Market gains are just beginning

A better-than-expected deal out of the eagerly awaited eurozone summit has kicked off what could become a long rally.

By Anthony Mirhaydari Jun 29, 2012 1:05PM

Finally, Germany cedes a little, and markets go crazy. European leaders agreed to take steps toward closer budgetary controls and tighter political union. Moreover, in a victory for Europe's Latin Bloc, German Chancellor Angela Merkel opened to using bailout funds to directly recapitalize banks and to purchase sovereign bonds in the open market.

 

This is huge step forward, and markets are responding accordingly. By all indications, the gains are just getting started ahead of what could be a multimonth advance before worries over America's "fiscal cliff" -- tax hikes and spending cuts worth about 5% of GDP due to hit in early 2013 -- cause new weakness. Here's how to play it.

 

 

As I previewed in my column this week, Merkel realized that her constant recalcitrance against any fresh steps to ease the eurozone crisis (moves toward liability sharing via Eurobonds or a banking union) was quickly spiraling out of control. Spanish and Italian borrowing costs were reaching unsustainable levels. And political cohesion was beginning to fray, with Spanish and Italian leaders threatening to veto a new $150 billion growth package if there was a lack of progress on these issues.

 

So the outcome from the summit -- which was the 19th meeting in two years -- was very, very good. This follows a good outcome from the Greek election and fresh stimulus measures by the European Central Bank (relaxation of collateral requirements).

 

With investor sentiment so negative heading into this meeting, people have been taken by surprise. Friday's market action demonstrated this with huge, gapped moves higher in key assets. Small caps. Emerging-market stocks. Crude oil. Copper. Precious metals. They all moved by leaps and bounds.

 

 

Technically, it's all systems go for a fast-moving rally led by foreign stocks, financial issues and commodities. Breadth has been improving steadily as more and more stocks participate in the upside while fewer and fewer participate in the declines. Deflationary expectations are easing in the bond market, which is a good thing that will suck money out of Treasury bonds and put it into stocks and gold.

 

And the dollar -- on which so much of the market moves, as computer-trading algorithms use the euro-dollar exchange rate as a measure of risk appetites -- got absolutely pummeled, resulting in a cascade of short-euro, long-dollar trade covering. For the bears, it's a terrible day.

 

I'm looking for this advance to continue into August as eurozone progress and central bank stimulus fuel another ride higher, as I discussed in my column last week

 
Trading update

The leveraged ETF positions in the Edge Letter Sample Portfolio were well positioned for Friday's rise. Both the Direxion 3x Emerging Markets (EDC) and the Direxion 3x Semiconductor Bull (SOXL) are posting 10% gains. New position Synovus Financial (SNV) is also doing well, up 6% since I added it on Wednesday.

 

I'm adding two new positions to my portfolio, European lender Banco Santander (SAN) and Indian metals miner Sterlite Industries (SLT).

 

I found both SAN and SLT with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)

 


Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.c​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

86Comments
Jun 29, 2012 3:40PM
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Just more and more crap by so-called "experts"... personally I have never met an "expert"...will someone stand up so I can see what one looks like??...after the supreme court jesters joke on the American people this week by giving a green light to that garbage strewn "health"plan...(the last poll showed over 60% do not want this) I am thinking of changing my name to Gomez and standing in line for some of the freebies that I have been paying for all these years so the illegals and welfare scum who milk us dry can stay healthy and happy. At least I know that my vote will cancel out one of obamas...and whoever gives a thumbs down to this I guarantee they will be wondering why their wallet is so thin very soon.

Jun 29, 2012 5:18PM
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I expect the markets to be down on Monday due to profit taking & a new crisis in Europe. The roller coaster ride will continue for a long time.
Jun 29, 2012 9:03PM
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Y'know, I have a question. Back about 1965 (yeah, yeah, I'm old), recall savings accounts routinely paid 3% interest and those new-fangled money market funds paid about 5%. Loans were running about 7% for a car.

So why is it that today, when Italy and Spain are looking at that level of interest on their loans, it is termed 'unsustainable'.(Especially when interest paid on savings is what -- .1%? Somebody's picking up around 6.9%, therefore, rather than 2-4% difference from savings.

 I think I call BS.

Jun 29, 2012 4:13PM
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Our government, justice department, stock market....Eric Holder.

Corruption is the rule rather than the exception.  Thank you Mr. President.


Jun 29, 2012 4:12PM
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Another trend chasing article. I bet there's already mirror story in Anthony's can about the market going south. He'll pull  that one out and print it next week when we have a 250+ point down day.
Jun 30, 2012 10:10AM
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It was just a week ago that this guy was saying the market "is in it's last gasp". 
Jun 29, 2012 5:09PM
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Mirhaydari is obviously well-informed, but he's no different than any other investor who takes current events and projects them out indefinitely. Things have looked bad for a couple quarters, so he's been all gloom and doom lately. But now we've got a bit of good news and all of a sudden we're set for a long rally. This is why most of what comes out of the press isn't very useful. What I'd like to see these sites do is provide useful analysis of the long-term, not take short-term data and make worthless predictions based on them.Real investors are interested in a lot more than what might happen through August. That sort of information is only of interest to market timers, who usually end up getting their butts whipped.
Jun 29, 2012 9:19PM
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This financial "union" won't make he end of this decade. When an individual spends irresponsibly and runs out of money, and someone comes to their rescue, what do you think they do? Learn their lesson and tighten their belts? No. They do it again expecting the same help. The working citizens of the nations providing the bailouts will eventually absorb the costs and put their collective foot down, opting for leaders who won't bend to international pressure so easily.    
Jun 29, 2012 4:06PM
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Anthony, my friend. You are getting a bit better at writing articles. Some of your arguments started making some sense. Now, you've got to stop using this BS charts. You are not in school anymore. Make your point by bringing smart analytic arguments and some numbers, if you wish. 

You forgot to mention that the so called rally will last until people realize that the EU deal is just temporary pain killer. Once its effects go away, you can flip your charts upside down.  
Jun 29, 2012 4:24PM
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It's funny how many people cry foul about the stock market, but then they turn around and put money right back in...if everyone would just stop giving these scam artists called brokers their money we would all be better off. STOP putting money in the market. It is proven it is rigged and the investors are the only ones making money off bonuses. Just look at the Barclay bank insider trading incident. They admitted fault and received no punishment. They admitted to price colluding and fixing. It's a scam...GET OUT of the market.
Jun 29, 2012 2:06PM
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It's all bull$hit and everyone knows it.  Those in control of this market should be put in jail for fraudulent behavior.  Plus the SEC has no ball$ to even try to regulate.  So if you want to "invest" in this ponzi scheme go right ahead..my money is safe and sound.
Jun 29, 2012 11:15PM
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This rally is based on SOS and it's going nowhere. They borrowed to get into a disaster and now borrow their way out? What takes place will catch fools off guard.
Jun 29, 2012 4:12PM
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Good god...........everybody knows stocks are way, way, way overpriced right now, except maybe the idiots that had to pump trillions of dollars in to make this market rise 200 points.

 

The EU can do all the money laundering they want and things won't get any better.  And, the dumbocrats can pass all the tax and spend legislation they want and things won't get any better.

 

Millions upon Millions of unemployed people all over the world and no healthcare law or EU bailout is going to fix the problem!

Jun 29, 2012 5:34PM
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Europe and Americas debt crisis - either pay down the debt or bankruptcy. This political and economic maneuvering is just lying to ourselves. Why people believe in fairy tales is beyond me.
Jun 29, 2012 4:12PM
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I learned what an "expert" is about 40 years ago in college. "X" is a sign for the mathematical unknown, and "spert" is a drip under pressure. Put them together and what do you got? An Expert is some unknown drip under pressure!

Jun 30, 2012 12:59AM
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All Hype. It doesn't even matter if the situation is calmed anymore. The economic landscape has been changed indefinite. Someone has to pay the bill. Wait for one hair to fall out of place. They'll all be running for the hill.

Jun 30, 2012 2:07PM
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Quote:

“So the outcome from the summit -- which was the 19th meeting in two years -- was very, very good.”

 

How many times in the recent past have the media declared that Europe’s problems were finally being addressed, only to find out later that minimal or zero real progress had been made?  And then there's the fact that Europe is still trying to make socialism work, and the fact that bailing out socialists just kicks the can down the road to an even bigger economic disaster.  And just look how well the Federal Reserve’s manipulations of the American economy have worked!

 

It won’t be surprising if the market drops a few hundred points next week, and continues its zig-zag pattern of euphoria over Europe one day then gloom over Europe the next.

 

The 19th meeting in two years?!  Gimme a break.  A year from now they'll be on their 28th meeting in three years.  Europe is the same socialist dump today as it was yesterday.

Jun 29, 2012 5:51PM
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I wish the so called governments (world wide) and policital ****'s would stop screwing around with people and the very hard earned money that they worked so hard for to have a decent life in retirement....SHAME ON ALL YOU NASTY HUMAN BEINGS!!!!!!!!!!!!!!

Jun 29, 2012 4:27PM
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yes, i agree;  it's mostly lies and p.r., intended to buy time for politicos

wanting to stay in office.  the "preserve the euro" philosophy is insane,

mostly because it rewards fiscal mismanagement and squandered

assets by robber-nations....and those who created these monumental

deficits should be made to suffer the consequences.  instead, they are

being given billions, which only reinforces the irresponsible behavior.

better to starve it out.  this news is about something that is a micro-blip

in a macro-downspiral, something to postpone the ultimate collapse

of nations' economies.

Jun 29, 2012 5:04PM
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Complicated sh!t like this cannot sustain itself indefinitely. Eventually, people - investors - migrate to what they know and understand, like staples, commodities, and cash.

 

One day's rally does not change any of this.

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